What is the Annual Accounting Scheme For VAT?
Did you know that if your business is VAT registered, as well as the standard quarterly VAT returns you need to complete, there may be other VAT schemes available to your business for you to still comply and account for your VAT, but they may suit your business better. The VAT accounting scheme could be an option, but what is it?
Well instead of having to regularly complete VAT returns, with the VAT annual accounting scheme you only have to complete one VAT return per year and so can cut down on your administration time and costs as well as help manage your cashflow, although you still have to make regular payments of VAT to HMRC and keep all receipts and records to support your business and have a means to be able to complete your VAT return accurately in one go. You are required to make interim payments and these can be either nine monthly payments during the year or three quarterly payments during the year. If your business has already been registered for VAT and you have completed a year’s VAT returns, your interim payments will be based on the average of last years’ claim. If you are under twelve months registration, then your interim payments will be based on an estimated amount of VAT that is thought to be owed at the end of the year. When you complete your annual VAT return, you will offset all your interim payments and you will either be left with an underpayment of VAT ie an amount that needs to be paid to HMRC, known as a balancing payment, or you will have overpaid and be due a VAT refund. The Annual VAT scheme is available to your business as long as your turnover (your sales income) is under £1.35 million, but there are some restrictions such as your business being part of group vat registration, you are not upto date with your VAT returns, insolvent or your estimated income exceeds £1.6million. Monthly interim payments will be 10% of your previous or estimated VAT liability or quarterly payments will be 25% of your previous or estimated liability.
The benefits for using Annual accounting VAT scheme is that there is only one VAT Return to be completed per year instead of four, you get two months (instead of one) to complete and send in your annual VAT return as well as pay any balancing VAT due, can assist in managing your cash flow by paying fixed amounts either monthly or quarterly and you can also make additional payments as and when suits you and your business.
However, you may find there can be disadvantages to your business’ cash flow when using the annual accounting scheme too. For example if you regularly receive VAT refunds on the standard quarterly accounting scheme, instead of receiving regular refunds you will only get one repayment at the end of the year. Also, if your turnover is likely to decrease, you are still required to continue with your interim payments which may be higher than your VAT payments would be under the standard VAT accounting scheme and you would have to wait again until the end of the year to receive your refund.
You can join the annual vat accounting scheme from either the first day you register or you can complete an application form and apply at any time which suits you. You may also leave the annual VAT accounting scheme and revert back to the standard accounting scheme at any time. HMRC can also remove you from the scheme if you do not calculate your VAT correctly or you are assessed for a VAT penalty or evasion. Once you have left the annual VAT accounting scheme you can not rejoin until twelve months have passed.
You may use this accounting scheme as well as other special VAT schemes available such as Flat Rate Scheme, Retailers Scheme.
The rules and regulations surrounding VAT can be quite complex and it is always advisable that you may seek further professional guidance when considering this or any other aspect of VAT.
